Diageo looking good for year ahead

Published: 23 July, 2008

Strong sales of brands such as Johnnie Walker and Smirnoff will be the main factors in generating organic revenue growth of 6.5% for Diageo in the year to the end of June.

Ahead of its full-year results, to be published at the end of August, Diageo the world's largest drinks group said it expected to match the 7% organic operating profit growth target set six months ago. Last year, it grew by 5%.

As the year closes, we have successfully delivered on our objectives,' said Paul Walsh, the chief executive. We are building a superior position in North America, investing strongly behind our brands in international, and continuing to reduce costs in Europe.'

He added that the share buyback programme would continue, and that in the coming financial year, the group would return a further 1.4bn to shareholders, matching this year's level, in addition to dividend payments of 864m.

Diageo said that its priority spirit brands outperformed the market in the US but in Europe, the consumer environment remained subdued, with increased regulation limiting sales. The international division's sales growth was strong, with

double-digit top-line growth, especially in Latin America.

The company also revealed that its profits are likely to be 30m lower than would have been expected if exchange rates, especially the US dollar, had not moved against it. The company said that in a full year each movement of a cent by either the dollar or the euro affected profits by about 3m.

The guidance was much as expected expected by analysts in advance of the full results in two months' time. The consensus was that Diageo was gaining momentum, especially in North America, but that the beer division remained problematic, especially in Ireland. Sales of Guinness, which account for about 20% of Diageo's profits, were 5% down.

The ready-to-drink brands such as Smirnoff Ice are suffering a further decline in European sales but are growing internationally. The group is seeking to revive the category through new products and in April it introduced the fruit-based drink, Quinn's, which was its biggest brand launch for five years.